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International VC investment down 63 per cent in Q2

Venture capital investments in the international markets continued to slow in the second quarter of 2009, according to data from industry tracker Dow Jones VentureSource.

Venture capital investments in the international markets continued to slow in the second quarter of 2009, according to data from industry tracker Dow Jones VentureSource.

Investors put USD1.46bn to work in 250 deals for emerging companies in Europe, Canada, Israel, China and India in the second quarter, less than the USD1.99bn invested in the first quarter of 2009 and down 63 per cent from the USD3.95bn invested in 452 deals during the second quarter last year. This marks the lowest non-US quarterly investment total since at least the height of the tech boom fallout in 2003.

"We’re seeing a clear trend indicating more later round deals as venture investors work to sustain their current portfolio companies," says Jessica Canning, director of global research for Dow Jones VentureSource. "As the IPO timeframe increases, investors are finding it more challenging to maintain their stakes in current investments."

In the US, venture investors put USD5.27bn into 595 deals, a noticeable improvement over the first quarter but still down compared to a year ago.

According to Dow Jones VentureSource, Europe garnered USD831m (EUR620m) in 156 deals during the second quarter of 2009, down 47 per cent from the USD1.58bn (EUR1.07bn) put into 272 deals during the same period in 2008. This marks the lowest deal count and investment total for Europe since Dow Jones VentureSource began reporting on the region in 2000.

Like the US, Europe’s information technology industry is seeing the most significant declines. The industry suffered its worst quarter on record with USD287m (EUR214m) invested in 72 IT deals in the second quarter, down 67 per cent from the USD861m (EUR580m) put into 144 deals last year. Within IT, the software sector fared the worst, attracting just USD83m (EUR62m) in 24 deals, the lowest totals on record for the segment.

Investors put USD259m (EUR193m) into 29 healthcare deals in the Europe region during the quarter, a 22 per cent decline from the second quarter of 2008 when USD270m (EUR182m) was put into 43 deals. Even Europe’s energy and utilities industry took a hit in the second quarter with investment declining 84 per cent to just USD55m (EUR41m) in ten deals.

"Global investors are remaining cautious due to continued uncertainty with the economy,’ says Canning. "Even the traditional sectors, like IT and healthcare, are not attracting as large a share of the overall investment as they once did."

According to the data, the size of venture deals fell throughout the world in the second quarter of the year. In Europe, the median size of a venture capital deal dropped 13 per cent from the USD3.4m (EUR2.3m) in the second quarter of 2008 to USD3m (EUR2.2m) in the most recent quarter. In Israel, the median deal fell 32 per cent in size from USD6m a year ago to just under USD4.1m in the most recent quarter. The median sizes of deals in India and Canada stood at USD4.2m and USD3.2m, respectively, in the first half of the year.

The median deal size in US dropped 18 per cent from USD8m a year ago to USD5m in the most recent quarter. In China, the median deal size stood at USD7.5m after the first six months of 2009.

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